Costco May Face Increasing Competition, Decreasing Memberships

Article published in The Motley Fool, Sept. 6, 2016:

How Risky is Costco Wholesale Corporation?

Warehouse clubs exist because in exchange for a membership fee they offer low prices, albeit sometimes in inconvenient quantities.

Costco has thrived by serving an audience of members looking for deals. The retailer courts bargain-hunters by cleverly curating its selection of merchandise. The chain always has certain staples such as milk, coffee, and healthcare supplies, while shifting up the rest of its mix.

That makes its stores a bit of a scavenger hunt. You might enter knowing you need K-cups, cereal, or washing machine detergent pods, only to happen upon a great deal for a snowboard. Not every item is actually a deal, but generally the prices are good, and the merchandise mix, heavy use of sampling, and low-cost snack options keep people coming back.

For 10 years that basic formula has produced a near-steady rise in the company’s stock price. Until recently there was no reason to believe that might change anytime soon, but there are signs that after an impressive run, Costco stock does face risks from digital competitors, specifically and Wal-Mart which generally have the warehouse club beaten when it comes to price selection. As these rivals improve delivery — something both have invested heavily in — Costco may have something to fear.

What should Costco worry about?

Costco offers two things to its customers — good prices and a shopping experience. Amazon and Wal-Mart, to a lesser extent, already have the warehouse club beaten when it comes to price plus convenience. In most cases, the online sites offer comparable if not better pricing on most items Costco sells without requiring the bulk purchases the warehouse chain forces for many items…

Amazon and Wal-Mart have offered those advantages for years, but they haven’t been able to match the immediacy of shopping in a store. That gave Costco (and physical Wal-Marts) a reason for being that digital players could not match.

In recent years, however, Amazon has bridged that gap, with Wal-Mart working hard and spending big to catch up. The online leader now offers Sunday delivery, same-day delivery in some markets, and even nearly immediate service in limited areas. Amazon has also made two-day delivery a standard, with incredible reliability to the point that if a consumer doesn’t need something immediately, why not order it from the online giant and not have to leave the house?

Going forward, Amazon — and eventually Wal-Mart — could have drone deliveries, trucks with 3-D printers roaming the country, and advanced predictive software that brings items from warehouse to customer even faster. When that happens, Costco, which has mostly ignored its digital operations to keep the focus on its stores, has something to worry about.

Should Costco shareholders worry?

For the Costco customer who visits the store because it’s entertaining, faster online shipping and better prices or selection at or shouldn’t matter. The shopper perusing the warehouse club based on getting a good deal, however, may eventually be swayed to drop his or her membership.

For now, Costco has an immediacy advantage over its rivals. Going forward that may not be the case, as Amazon and Wal-Mart’s digital arm — which now includes — both shorten the delivery window. That represents a risk for all retailers, but Costco could ultimately feel a pinch it has so far avoided.

As Amazon ups the delivery bar and Wal-Mart scurries along behind it, Costco members may decide that visiting a store — especially one that charges an annual fee for the privilege — isn’t worth it. When that happens, and the day isn’t that far off, Costco memberships, sales, and ultimately share price may suffer.

Mayor Probed Over Ties to Costco on Eve of Vote on Big-Box Ban

Story appearing in the East Bay Times, 10/28/16, written by Angela Ruggiero

Just days before the election, a former Pleasanton councilman filed a complaint against Mayor Jerry Thorne, launching a state commission to investigate potential political malpractice.

The state Fair Political Practices Commission said it was investigating a complaint against Thorne for allegations that he had a conflict of interest with Costco because he owns shares in the company. With Measure MM, Pleasanton voters will decide on Election Day if they want to ban big-box stores such as Costco on a development area on Johnson Drive near the highway.

A probe is launched after it’s determined that a filed complaint has merit, according to the FPPC. It could take up to a year to complete the investigation, which would determine if there was a violation and reach a resolution. Some violations, for example, result in fines for the elected official.

Thorne recused himself from discussions about Costco in July the when the City Council decided to put the measure on big-box stores before voters after Citizens for Planned Growth gathered enough signatures. Sullivan, in his complaint, states that there were several instances where Thorne advocated on behalf of Costco before he had to recuse himself.

Thorne said he reported his Costco stocks in his statement of economic interest or Form 700, a document that lists elected officials’ assets to spot any potential conflicts of interest. The stocks were in a mutual fund-like account, where a manager moves them in and out. Although Thorne has listed the Costco stocks since 2014 in his economic interest forms, he said he didn’t realize there might be a conflict until July.

“I don’t commit them to memory,” he said.

He said when he was filing out his Form 700 to run for mayor this year he checked with the city attorney, who suggested Thorne recuse himself. Thorne said he has since sold the Costco stocks, about 27 shares.

In addition to Measure MM, Pleasanton voters next week will choose City Council representatives. Incumbents Jerry Pentin and Karla Brown are looking to keep their seats, but are being challenged by newcomer Herb Ritter. Ritter has indicated he wants to unseat Brown. In the mayor’s race, Julie Testa is challenging Thorne’s seat.

Local Business People Support YES on MM

A group of local business people issued a letter in support of YES on MM, which was distributed today in Pleasanton.


Expect dramatically longer commutes home to Tri-Valley if Costco is built

Posted on Town Square, Pleasanton Weekly, Oct. 26, 2016, by Brian Moore:

I want to first go on record that I am not trying to be demeaning to anybody’s opinion here. I only hope to give you some things to think about. Ultimately your vote is a choice between the pros and cons as you see them.


  • I am a 13 year Pleasanton resident, a single dad of two young boys (7 and 9) in Vintage hills. I am a busy dad.
  • Bill Wheeler is a friend of mine and was a great partner in the RidePal business (see below). Also irrelevant in my analysis.
  • I love Costco, and selfishly would love one closer. I am there weekly and time is my biggest life challenge. I was at Livermore Costco twice this week already.Irrelevant in my analysis.
  • Costco is also a great employer. No argument.
  • I have not looked into whether the deal cut by the city is good or bad as my decision-making framework does not let me even get to that stage.
  • I am intentionally omitting all discussion on autonomous vehicles.

For the last 3 years, as former CEO of RidePal, a shared-corporate commuting platform, I have helped companies leverage and share corporate commuter buses aided by the RidePal technology to get their employees to work in other than a single-occupancy vehicle (SOV). We helped avoid hundreds of thousands of SOV trips over the last 4 years.

Our company mission was SOV trip-reduction to help reduce congestion, improve the quality of life of our commuters, and help employers with recruitment, retention, and productivity. I am proud of what we accomplished despite being just a drop in the bucket as to the traffic problem. The job loss, productivity loss, and impact on families as a result of this traffic pandemic is astronomical. Jobs are already leaving the Bay Area due to this problem. In this role, I have been in many think-tank sessions about traffic mitigation, affordable housing shortages, the housing-job dislocation, and the impact of traffic on different socioeconomic classes. I have been privy to a lot of data including MTC data on what 2020 will look like unabated. It is scary.

In my recent role running RidePal, I rarely drove. I dropped my kids off at Vintage Hills school at 8a, drove to a residential area just south of Stoneridge, as Bart parking does not exist after 8a, usually went back one station to East Pleasanton to get a seat so I could work on the way in to make up lost time, took Bart to Civic Center, and finally took a RidePal enabled bus to 8th and Townsend, or walked 7 blocks if I just missed it. I left the house at 7:55a and got to work on avg. at 10:30a. To pick up the boys by 6p at after-school care, I had to leave on the 1st RidePal bus to bart at 3:50p and was often late for the 6p pickup. It was the RidePal way to not drive in a SOV but occasionally I had a meeting I could not get to without a car. I used the casual carpool pickups when possible on the way in but could not on the way home due to the race to get the boys. In the last 3 months, I have had one-way evening commutes from SOMA (8th and Townsend) to Pleasanton between 2 and 3 hours. I have similar stories from friends, neighbors or prospective RidePalers who commute to SF, Silicon Valley or the mid-peninsula.

I will get to my conclusion first. I am voting yes on MM and have to put aside my selfish interests for a local Costco and don’t really care whether the decision is good or bad for BlackTie Transportation (Sorry Bill).

  • 580/680 is a major interchange for commuters to SF, mid-pensinsula, Silicon Valley or even the East Bay (along the 880). These commuters come down the 680 from Walnut Creek, Danville, San Ramon and farther, and in on the 580 from places as distant as Modesto, Stockton, Brentwood and Lathrop. They come west to east to Bishop Ranch, Hacienda Business Park, and Eastern Dublin. Thus our decision impacts the greater region and not just Pleasanton.
  • In my thousands of discussions with commuters, employers, government officials (state, county and city), transit agencies, and the Bay Area Council, we are in deep trouble. We can’t build our way out of this mess and it is going to get much worse. Bart and Caltrain are at capacity and have parking shortages causing SOV trips for commuters that could otherwise have taken Bart or Caltrain. We need to solve the 1st mile problem to Bart as well and not everyone can bike or take uber/lyft everyday. In less than 5 years, expect LA-like traffic from 5a to 9p with no midday lulls unless we act.
  • I believe we have to have a zero-tolerance for policies or decisions that worsen regional congestion.
  • We absolutely need to leverage technology to promote alternative trips and make them easier and more accessible.
  • We need public private partnerships to help fund alternative commute solutions.
  • We also need better carrots AND sticks for more employers to fund alternative commute solutions. SB 1339 just does not have enough teeth.
  • I was recently at governor day and I can assure you that no near-term solutions are coming from Sacramento. Reduced gas taxes due to lower oil prices have infrastructure projects being cut that were previously approved.
  • At that same event, major Bay Area employers along with the Bay Area Council were pleading for help from Sacramento as these employers can’t adequately staff their positions due to our traffic problem and these vital employers are now looking to place these jobs in other states.
  • In other words, our highway efficiency is vital to our economic interests.
  • Now let me put my social-mission hat on. The pain of our traffic congestion problem disproportionately impacts lesser income families in Modesto that commute to the Bay Area more so than those in Pleasanton. Those in the trades, health assistants at Kaiser/UCSF/CPMC, or those making beds/cooking meals in SF hotels/restaurants are now suffering 5+ hours on the roads each day. The wealthier just move closer driving up the cost of urban housing further preventing lesser income families from living close to where they work. Shall we just say “It’s not our problem?”
  • In a recent meeting with the Golden Gate Restaurant Workers Association, SF restaurants are having serious challenges filling jobs. Housing prices have pushed many of their employees and prospective employees out of SF and the commutes to SF are so horrendous, these displaced workers won’t commute to the city to work for restaurant wages. Remember that transbay transit virtually stops at midnight so the car is often the only choice. What is this going to do to SF as a destination/entertainment city and to your enjoyment of this fine city?
  • A quick note about traffic flow. 10% more cars does not equate to 10% less flow. It is NOT linear. Once saturated, including the city on-ramp/off-ramp streets, flow reduction is exponential. Exiting and entering freeways creates even more flow reduction than just more cars. If you are in Palo Alto, check out the Arastradero exit on 280 and the extremely long lines to exit in the morning.
  • I am also worried about the impact on Pleasanton’s city streets as Costco shoppers try to avoid the congested highways. I never take the freeway to the Livermore Costco. What will Stoneridge and Hopyard become? I might be better off going to Lowes in Dublin than Home Depot in Pleasanton. Even today, I take Foothill Road from 580 and come down to Bernal to get home if I drive.
  • For those that make decisions with data, I would encourage you to look at Vital Signs data on the MTC website and PeMS on the Caltrans website (need to register to access). They are not the most user-friendly sites but the data is good.
  • I believe Tri-Valley needs to learn from cities like Mountain View, Sunnyvale, Palo Alto and counties like Santa Clara. These cities/counties have mandated stringent SOV trip-reduction targets on their employers and in some cases zero incremental trip mandates. So for every car added they have to reduce one. Inability to agree to these trip targets precludes obtaining building permits. Failure to meet trip-reduction targets for already approved facilities can yield $1m+ fines for these employers. These cities/counties are serious. We should be too before 680/580 become as bad as 101/280/237/85.
  • Are you happily married? According to one study, you are 40% more likely to get divorced if your commute is over 45 mins long. Try 2 hours.
  • Lastly, on a financial note. Our property in SF has doubled in value since 2005. My house in Pleasanton is flat to maybe a slight increase in the same period. In my opinion, if the 2020 MTC traffic models come true, suburban housing prices will decline or at least not rise as much as urban housing or housing next to key job centers (e.g. Mountain View). The youth is going carless and urbanizing.

So I distill this down to choice between the pro of slightly more convenience with a closer Costco and the con of exacerbating regional congestion due to negatively impacting a major interchange that Northern Californians of all income levels depend on for their livelihoods. I think we should accept less convenience for the greater good.

The Independent Endorses YES on MM

Endorsement in the Oct. 20 edition of The Independent:

There are many reasons to support the “yes” position on Pleasanton’s Measure MM, dubbed the “Costco Initiative.” If approved, the measure would limit new buildings within the Johnson Drive Economic Development Zone (EDZ) to 50,000 square feet.

A “yes” vote would mean a vote against locating a Costco on the 40-acre site. The city has stopped processing the EDZ, pending the outcome of the vote on November 8.

Issues include traffic, air pollution, jobs, economic impacts and financing of transportation infrastructure.

The city hired a consultant to compare what would happen if Costco were or were not approved. The report, issued in August, concluded that if MM were approved and Costco did move forward, there would be less traffic, less pollution, 500 more jobs, comparable sales tax, and infrastructure would be built without subsidies or a loan.

On the other hand, opponents of the measure note that the site offers prime freeway visibility that would bring in more tax revenues to finance city services and projects.

However, additional concerns about the Costco project focus on city staff negotiations that offer Costco a subsidy. The project’s mitigations are estimated to include $16 million in infrastructure improvements. Questions have been raised over how those improvements would be financed. Loan amounts to the city from Costco range from $6 million to $7.5 million; the loan would be paid back to the developer plus interest using tax revenue generated by the project. Rebating tax funds to Costco would limit the amount of tax revenue that could be available to the city for projects such as a new library.

To avoid controversy, the city should have been more forthright telling the public it was negotiating terms of the financing of infrastructure.

We support the environmental and job benefits to the city. We recommend a yes vote on MM.

Pleasanton’s Financial Deal with Costco Released

An article published in the Town Square section of Pleasanton Weekly on October 3, 2016
The Pleasanton Citizens for Responsible Growth’s request for documents, under the California Information Act, has finally produced the details of The City of Pleasanton’s negotiations with Costco. An email from Nelson Fialho, City Manager, to Mike Dobrota , Costco Regional Manager, revealed the following:
$7,500,000 – Pleasanton Contribution, borrowing from Costco for 25 years, total with interest $10,067,006
$3,100,000 – Nearon Contribution, ($4,780,000 less credits $1,700,000)
$5,335,000- Pleasanton Contribution from Traffic Impact Fee Reserve Fund 

$16,005,000 Total Cost (engineers’ estimates)
$15,402,006 Pleasanton’s Contribution (with interest)

The borrowing and interest amounts were confirmed by Tina Olson, Pleasanton Director of Finance, on May 11 and by Mike Dobrota, Costco, on May 12. There have been no subsequent documents, or changes.

These were not the numbers used in the City Council meeting of April 12. Both the minutes and the audio of the City presentation are missing.

YES on MM Campaign Begins

YES on MM, the campaign to encourage Pleasanton voters to vote YES on Measure MM, the initiative to limit the size of retailers on Johnson Drive, has begun.

Organizers were met with a lot of enthusiasm at the Downtown First Wednesday event on Sept. 7, and have been handing out materials at the Farmers Market and other events.

On Sept. 22, the YES on MM Facebook page was launched.

If you are interested in putting a sign in your yard or on your business, or would like to help in getting the word out, contact us at

Measure MM Initiative Supporters Dispute City Report

Reposted from The Independent (Livermore) website:

An analysis of Pleasanton Measure MM found differences in traffic and economic impacts between a citizen’s initiative and the proposed 40 acre Johnson Drive Economic Zone. Findings concluded that the initiative would have less traffic impact; it would have greater negative impact on existing retail.

The initiative, which if approved by voters in November, would limit individual retail uses to less than 50,000 square feet in the Johnson Drive Economic Zone area, located east of Johnson Drive and north of Stoneridge Drive.

Last December, Costco signed a letter of intent to acquire the 40-acre Johnson Drive site from Nearon Enterprises, which bought the property after Clorox moved its research center to a new corporate campus nearby. Once it was known that Costco was considering opening a store in Pleasanton, members of the public began attending council meetings, where they raised concerns about impacts of a Costco on local businesses and traffic. Eventually, they organized and launched an initiative drive, which was successful.

After placing the initiative on the ballot, the city council asked for an analysis of the impacts of the initiative on the city. Analyzed were such factors as fiscal impacts, economic impacts, traffic, and air quality.

The studies were conducted by ESA. They were paid for by Nearon Enterprises.

Citizens for Planned Growth, sponsors of the initiative, said they planned to hire a consultant to conduct a peer review of the study.

Christi Harris of ESA summarized the findings during last week’s Pleasanton City Council meeting.

The initiative would generate 1235 jobs compared to 678 for the zone, because general retail hires more employees than club retail, such as Costco. However, more employees would generate more demand for city services, such as water.

The initiative would generate less traffic. Both the initiative and zone would require similar improvements in traffic infrastructure. With no anchor store to generate funding, the initiative would be less likely to be able to finance the traffic improvements, said Harris.

Both the zone and initiative would exceed air quality standards.

The economic study found that the initiative would have somewhat greater impacts on existing retailers with the potential for existing businesses to lose sales and close. Harris explained that the report estimated that the initiative would divert $5.7 million of sales from local businesses, while the zone would divert $1.3 million at buildout.

Fiscal impacts were similar with the initiative generating $2.1 million a year by 2028 and the zone $2.5 million a year for the city’s general fund.

There were questions about whether the cost of traffic infrastructure was included in the studies.

City Manager Nelson Fialho set the estimated cost for improvements at $16 million. One-third would come from the developer; one-third from traffic impact fees accumulated by the city; and one-third would be paid from sales tax generated by Costco. Fialho explained that Costco would advance funds to the city and the city would pay back the money over time by returning sales tax over $700,000 a year to Costco.

Another concept would be for the city to borrow from its $270 million in reserves, then pay back the money overtime using Costco sales tax. Absent an anchor tenant such as Costco, another option would be to establish an improvement district that would issue bonds paid back by the tenants.

During the public hearing, Don Mayday, a resident, called the report an example of the city massaging assumptions, data and arguments that support the preconceived conclusions. He noted that the bottom line is that the initiative reduces traffic by over 2500 trips by day over the zone.

He disagreed that the initiative would have more negative impact on current retails than Costco, noting that Costco prices many commodities, such as gas, at or below what other retailers pay. “Small retailers cannot compete with Costco pricing strategies.” He added, “It’s not the city’s job to make a project feasible to a developer.”

Bill Wheeler, who heads Citizens for Planned Growth, stated, “It seems that some of the conclusions are debatable.” He noted that the purpose of the initiative is to allow voters to express their views about Costco or a new economic zone.

The council, consisting of Councilmembers Kathy Narum, Jerry Pentin, and Arne Olson voted to accept the report. Karla Brown was absent. The referred to it as a good report. Mayor Jerry Thorne was recused.

The study has been posted on the city’s website.

New City Report Says Measure MM Could Bring Less Traffic & Pollution, More Jobs

Original post in the Pleasanton Weekly’s Town Square made by Bob A., Another Pleasanton neighborhood, on Aug 18, 2016

At the City Council Meeting on Tuesday night, three consultants, paid for by Nearon Enterprises, the owner and developer of the Costco properties on Johnson Drive, presented a summary of a report comparing two options for the Johnson Drive Economic Development Zone (JDEDZ): one with a Costco “Big Box” and the other with a mix of retailers in buildings less than 50,000 sq. ft. as required by Measure MM, an initiative that Pleasanton Voters will decide on in November.

In order to prepare the analysis, the consultants, guided by City Staff, had to make a number of assumptions, and therefore the analysis was incomplete. Financial incentives to Costco have not been concluded. This is my recap of what I heard.

Employment: The consultants said the Measure MM Scenario would create over 550 more jobs than the Costco Scenario.

Traffic: The consultants said that development under Measure MM would result in over 2,500 less vehicle trips a day on week days and over 3,600 few vehicle trips on Saturdays. More than a 20% reduction. They added that the mitigations would be much more effective under the Initiative Measure Scenario.

Air Quality: The consultants said that due to the traffic reduction there would be less of an impact on air quality under Measure MM.

Noise: The consultants said that due to the traffic reduction there would be less noise generated by the development under Measure MM.

Economic Impact: The consultants said that the Costco Scenario would have less of an impact on local businesses than Measure MM. During the public comment period, one speaker, took exception with the consultants in this area. He said that local businesses would be hurt the most by the Costco Scenario. This has been shown in numerous independent studies.

Fiscal Impact: The consultants said that the Costco Scenario would result in about $400,000 more per year in net revenue to the city. This is number was pointed out by a speaker to be inaccurate and incomplete. It did not include additional incentives being negotiated, or debt repayment of infrastructure, or the cost of using existing reserve City funds. There is no break even analysis in number of years.

Feasibility: The consultants said that the Costco Scenario was more feasible for the developer because a large anchor tenant was already committed to the project. This assumption, too, is incomplete since no effort has been made to find tenants under Measure MM, even though the Pleasanton Weekly had reported that Trader Joe’s had interest.

Financing: There was a lot of discussion and regarding how the $16 Million in traffic improvements necessary to make the JDEDZ work would be paid for. The discussion did include the necessity to borrow 1/3 (actually $6 million) from Costco or from a general fund that has $270 million. Do we have such a fund?

The presentation left many unanswered questions. What we do know is that Pleasanton taxpayers are being asked to pay over $11 Million to bring Costco to Pleasanton. ($6 million in borrowing plus $5 million of reserve funds).

Other cities routinely make developers foot the bill for infrastructure improvements required to support projects they want to build. Why can’t Pleasanton do this? Are there other alternatives that might cost tax payers less? Why not choose an alternative that produces less traffic, less pollution and more jobs and no borrowing?

What’s the hurry? Aren’t we better to wait, rather than accept a less desirable alternative? I will vote for Measure MM to slow the process and achieve a better long term result.